A Mid-Year Tune Up

Over the last 10 years, I have realized that complacency is a major problem in self-storage, particularly since we’ve been enjoying the recent strong performance of the industry. At one time or another we have all looked at our to-do list and thought, “I can do that next month.” Reviewing your operating expenses, however, is not one of those things you can afford to put off until next month. Operating expenses need to be reviewed regularly to ensure that the value of your property and its cash flow are not being undermined by subtle, yet devastating, increases in your operating expenses.

With all-time high capital flows of both equity and debt into the self-storage industry, it has continued to gain respect from Wall St. and the greater real estate investment world. This capital flow has caused capitalization rates to compress to record lows. It is because of this, along with low interest rates and strong market fundamentals, that the values of self storage properties have soared and made some owners complacent. When values climb and cap rates compress, we must ask ourselves; what happens when the market peaks? And how can we protect our investment? The risk that self storage owners face today is not only whether their net operating income goes up or down, but whether cap rates go up faster than their net operating income can compensate for the loss of value. With investors looking to maximize their rate of return and limit the amount of risk, it is only logical to think that if owners control and reduce their operating expenses and increase their revenue, that the net operating income and cash flow will increase the value of the asset.